The Assessment Of Risks As A Component Of Corporate ...

THE ASSESSMENT OF RISKS AS A COMPONENT OF

CORPORATE STRATEGY IN SELECTED LIFE INSURANCE

FIRMS IN KENYA

By

Magoiya, O. Kinyua

/A management research project submitted in partial fulfillment for the degree of

Master of Business Administration, School of Business, University of Nairobi

27lh September 2010

DECLARATION

This management project is my original work and has not been presented tor a degree in any

other University.

Date: 27th September 2010

Magoiya, 0. Kinyua

Admission : D61/P/8445/02

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This management project has been submitted for examination with my approval

University supervisor.

as

Dr. Zack B. Awino, PhD

Lecturer,

School of Business,

University of Nairobi

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DEDICATION

To my wife

Ann Wangui Kinyua

Who encouraged me during the duration of the study

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ACKNOWLEDGEMENT

My appreciation goes to all those managers in those insurance firms who participated in this

study and to my supervisor, Dr. Zack Awino, PhD, for his guidance and any body else who

assisted in any way.

God bless you all

in

TABLE OF CONTENTS

Declaration................................................................................................................................ iDedication................................................................................................................................ iiAcknowledgement................................................................................................................... iiiList of Tables........................................................................................................................... viList of figures.......................................................................................................................... viiAbstract................................................................................................................................. viiiCHAPTER ONE: INTRODUCTION1.1 Background of the Study................................................................................................1

1.1.1 Assessment of Risk........................................................................................... 21.1.2 Corporate Strategy............................................................................................ 31.1.3 Insurance industry in Kenya............................................................................. 41.1.4 Selected Life Insurance Firms in Kenya........................................................... 5

1.2 Statement of the Research Problem............................................................................... 61.3 Research Objectives...................................................................................................... 71.4 Value of the Research.................................................................................................... 7CHAPTER TWO: LITERATURE REVIEW2.1 Introduction................................................................................................................... 82.2 The Risk Environment.................................................................................................. 8

2.2.1 Market Stagnation Risk.................................................................................... 92.2.2 Industry Economics Risk.................................................................................102.2.3 Globalization Risk.......................................................................................... 122.2.4 Customer Risk................................................................................................. 132.2.5 Regulation and Deregulation Risks.................................................................152.2.6 Technology Risk..............................................................................................162.2.7 New Project Risk.............................................................................................182.2.8 Competitor Risk.............................................................................................. 21

2.3 Risk Mitigating Measures........................................................................................... 23CHAPTER THREE: RESEARCH METHODOLOGY3.1 Introduction................................................................................................................. 293.2 Research Design.......................................................................................................... 293.3 Population of the Study............................................................................................... 293.4 Data Collection Method.............................................................................................. 293.5 Data Analysis Method................................................................................................. 30CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION OF RESULTS4.1 Introduction....................................................... •:........................................................314.2. Analysis of Company Bio-Data................................................................................... 314.3 Analysis of Responses in Relation to the Research Objective..................................... 34

IV

4.3.1 Competitor Risk Attributes............................................................................. 354.3.2 Regulation and De-regulation Risk................................................................. 364.3.3 Industry Economics Risk................................................................................ 364.3.4 Customer Risk Attributes................................................................................ 374.3.5 Market Stagnation Risk................................................................................... 384.36 Technology Risk Attributes........................................................................... 384.3.7 New Project Risk Attributes........................................................................... 394.3.8 Globalization Risk Attributes......................................................................... 40

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS5.1 Introduction................................................................................................................ 415.2 Summary of Findings................................................................................................ 415.3 Conclusion.................................................................................................................. 455.4 Limitations of the Study............................................................................................. 455.5 Recommendations....................................................................................................... 455.6 Areas for further Research.......................................................................................... 465.7 Implications for Policy and Practice........................................................................... 46REFERENCES................................................................................................ 47APPENDIX 1: INTRODUCTION LETTER.................................................IAPPENDIX 2: QUESTIONAIRE................................................................... IIAPPENDIX 3: LIFE INSURANCE COMPANIES..................................... VI

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Table 4.1 : Company Bio Data........................................................................................... 31Table 4.2 : Means and Standard Deviations for the Variables........................................... 34Table 4.3 : Competitor Risk Attributes..............................................................................35Table 4.4 : Regulation and De-regulation Risk Attributes................................................. 36Table 4.5 : Industry Economics Risk Attributes................................................................ 37Table 4.6 : Customer Risk Attributes................................................................................. 37Table 4.7 : Market Stagnation Risk Attributes................................................................... 38Table 4.8 : Technology Risk Attributes............................................................................. 38Table 4.9 : New Project Risk Attributes............................................................................ 39Table 4.10: Globalization Risk Attributes.........................................................................40

LIST OF TABLES

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LIST OF FIGURES

Figure 4.1 : Proportion of Firms that were Locally Owned to Part Local/Part Foreign...... 32Figure 4.2 : Private versus Public Ownership.....................................................................32Figure 4.3 : Listed versus non-Listed Firms........................................................................33Figure 4.4 : Best Representation of Staff Size....................................................................33Figure 4.5 : Means and Standard Deviations Illustrated..................................................... 35

ABSTRACT

Risk is a concept that denotes a potential negative impact to an asset or some characteristic of

value that may arise from some present process or future event. Risk to strategy can be

intentional and an essential part of the company’s strategic execution or can be unintentional

or by-products of the strategic planning or execution process. Risks to strategy can be viewed

as the risks to earnings or capital arising from adverse business decisions or improper

implementation of those decisions. Risks to strategy are present due to the dynamism of the

business environment that keeps changing rendering strategy as designed obsolete. Given

this, the purpose of this study was to assess risks as a component of corporate strategy in life

insurance firms in Kenya. The literature review examines eight key risk categories that may

impact insurance firms. These are market stagnation risk, industry economics risk,

globalization risk, customer risk, regulation and deregulation risks, technology risk, new

project risk and competitor risk. It also explores the world of risk and identifies certain risk

mitigating measures. Under methodology, the research employed a descriptive survey design.

The population of the study consisted of only 23 insurance firms involved in life insurance.

Data was collected by means of a questionnaire, which consisted of open-ended questions,

closed-ended questions and matrix-type questions. Data analysis was conducted using

descriptive statistics, which included measures of central tendency, measures of variability

and measures of frequency among others. The findings indicated that the top three risks faced

by insurance firms were competitor risk, regulation and de-regulation risk and industry

economics risk respectively. Competitor risk was characterized by companies competing for

the restricted market which was not made any better by the worsening economic situation.

Given the reality of risks to company strategy, this study recommended that insurance firms

further enhance the deployment of strategic planning tools that give the firms an outside-in

perspective of the strategic planning process.

Key words: Risk, Corporate Strategy, Life Insurance, Firms, Assessment.

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CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Risk to strategy can be conceptualized as the risk to earnings or capital arising from adverse

business decisions or improper implementation of those decisions. This risk is a function of

the compatibility between an organization's strategic goals, the business strategies developed

to achieve those goals, the resources deployed against these goals and the quality of

implementation. The resources needed to carry out business strategies are both tangible and

intangible. They include communication channels, operating systems, delivery networks and

managerial capacities and capabilities. The definition of risk to strategy focuses on more than

an analysis of the written strategic plan. Its focus is on how plans, systems and

implementation affect the franchise value. It also incorporates how management analyzes

external factors that impact the strategic direction of the company.

Examples of risks to strategy that may affect life insurers include industry risk such as capital

intensiveness, overcapacity, commoditization, deregulation, and cycle volatility; technology

risk such as patents or obsolescence; brand erosion or collapse, competition from global

rivals, gainers, and unique competitors; shifts in customer priorities, power or concentration;

and project failures such as value-destroying mergers and acquisitions entered into without

contemplating integration costs. Others include stagnation risk in the form of flat or declining

volumes, and price declines. This risk is highly correlated to cycle volatility management.

Insurers have a difficult time redeploying their assets, since they are essentially intellectual

assets with a large degree of task specificity and stickiness. Insurers also suffer from

extensive reporting lags and potentially mismatched revenue and expense. These risks pose

problems to the effective implementation of corporate strategy.

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1.1.1 Assessment of Risk

Risk is a concept that denotes a potential negative impact to an asset or some characteristic of

value that may arise from some present process or future event (Douglas and Wildavsky,

1982). In everyday usage, risk is often used synonymously with the probability of a known

loss. Kimball (2000) defines risk management as the human activity which integrates

recognition of risk, risk assessment, developing strategies to manage it and mitigation of risk

using managerial resources. The strategies include transferring the risk to another party,

avoiding the risk, reducing the negative effect of the risk and accepting some or all of the

consequences of a particular risk.

The risk equation has changed. Every large enterprise consists of a collection of businesses,

each with a specific economic profile that includes both its upside potential and its downside

risk. Many businesses entered the last decade with strong upside potential and moderate

downside risk. But today, the reward/risk quotient for most firms has deteriorated for several

reasons. On the upside, most companies have weaker growth potential than in the past. As

products and markets have matured and international competition has intensified, many

companies have seen average revenue growth rates decline from the 10-15% range to the 1-

3% range. As a result of the decline in growth potential, companies have become less able to

absorb risk than in the past (Slywotzky, 2004).

At the same time, the downside (the denominator of the equation) for most insurance

companies is much larger than in the past. Greater risk can be seen in events such as the

terrorist attacks of September 11 2001, and the collapse of numerous insurance firms amid

charges of fraud and poor governance. There has thus arisen a need for firms to expand their

view of risk. Instead of just defending against bad risk events, leading companies should

define and anticipate the upside (reward generating) risks that, when well managed, can

deliver the maximum rewards. The discipline of strategic risk management allows insurance

firms to raise their growth potential in addition to reducing their economic volatility. This

research will demonstrate to business executives how to avoid the biggest risk of all-not

taking the right growth risks for the business.

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1.1.2 Corporate Strategy

Chandler (1962) who describes strategy as “the determination of the basic goals and the

objectives of an enterprise and the adoption of courses of action and the allocation of

resources necessary for carrying out these goals” is widely regarded as an example of a

holistic definition of the concept of strategy. However, Porter (1987) observes that almost no

consensus exists about what corporate strategy is, much less about how a company should

develop it. This is due to a combination of factors that relate to strategy terms, concepts and

principles, as well as their practical application.

Strategic management is the careful formulation, effective implementation, continuous

evaluation and monitoring of strategy for the long-run direction and performance of

organizations. Strategic planning is the process undertaken to develop a range of steps and

activities that will contribute to achieving the organizational goals and objectives. Strategic

planning is a management tool used to turn organizational dreams into reality. Strategic

planning attempts to systematize the processes that enable an organization to attain its set

goals and objectives. There are five general steps in the strategic planning process:

goal/objective setting, situation analysis, alternative consideration, implementation and

evaluation (Crittenden and Crittenden, 2000).

Corporate strategy focuses on the type of business that the firm intended to pursue, the plans

and action to formulate and implement and how to share the scarce resources among various

functional departments in achieving its mandates (Pitts and Lei, 2003). Andrew (1987) adds

and says that the corporate strategy defines the “product and the market and determines the

company’s course into the almost indefinite future”. Given today’s highly dynamic business

environment, there is a need for continuous risk assessment that ensures that the strategy

being implemented is relevant to the changing economic context. This entails strategy

content controls that realign strategy implementation with its changing context.

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1.1.3 Insurance industry in Kenya

There are currently a total of 42 insurance firms in Kenya The bulk of insurance companies

are local; the only multinational company represented is American International Group

(AIG), which conducts general business. The market is dominated by a few key players. The

top three companies control about one third of the total business. The top ten companies

control 61 % of the market (First Reinsurance Brokers, 2006). In the recent past, poor

economic growth resulted in cutthroat competition as insurance firms fought for a shrinking

premium base resulting in undercutting to the extent that uneconomical premium rates were

on offer, threatening the industry’s stability. Insured firms badly hit by the economic

downturn, sought ways to cut costs to remain in business and the insurance industry was a

casualty. Some firms resorted to not insuring some of their properties, while others used their

muscle to force insurers into taking low rates. Firms failed to pay their premiums resulting in

a very high level of uncollected premiums.

Macroeconomic trends, such as regional integration, mergers and consumerism have

influenced the insurance sector (Kerama, 2006) and have transformed economic models with

an emphasis on earnings. Insurers are under continuous pressure to increase market share and

share of disposable income; market forces such as the need to grow market share, provide

services, expand distribution capabilities and improve operational efficiency have

continuously pressured many insurance organizations locally to look for synergetic

acquisitions and shed unprofitable or non-core business.

Kerama (2006) further argues that one way in which insurance firms have fought back

against the unfavourable economic current is through the use of technology. Technology has

helped reduce the insurance transaction cycle time (using standardized transaction processing

systems); bypassed or eliminated elements of the value chain; automated internal processes;

extended the virtual supply chain (through use of the Internet) and reduced costs of

distribution, documentation and transactions. This in turn has helped improve shareholder

value and has increased profitability.

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1.1.4 Selected Life Insurance Firms in Kenya

The Life Insurance sector in Kenya is composed of 23 insurance firms (Raichura, 2007). This

sector was selected because it is marked by many challenges including a low level of

penetration of life insurance, a need to develop a high customer focus, a lack of extensive

marketing and poor distribution strategies, the need for product innovation, low levels of

trained man-power across the insurance value chain, rapidly changing Information

Technology (IT) world and processes, occasionally ineffective operational, financial and risk

management strategies, pricing wars and reserving requirements, lack of data and statistics,

fierce competition and rate under-cutting, insolvencies and financial distress of insurers and

Health Medical Organizations. The global emphasis on the need to move to fair value

accounting and risk based capital and insurance company taxation policies also impact on

their profitability. The sectors contribution to the national GDP is also very low as compared

to other financial sectors like banking.

The low level of life insurance penetration is characteristic of developing countries such as

Kenya. High poverty levels and low levels of awareness or lack of interest are factors that

contribute to this state of affairs. This is in spite of these countries having high mortality rates

owing to natural and man-made disasters. In formulating market penetration strategies,

insurance firms need to factor in consumer apathy towards their life products owing to

ignorance and complacency. There is a high risk of product failure owing to other more

pressing priority areas that potential consumers may emphasize on. This is exacerbated by

poor distribution channels and low levels of trained manpower.

Fierce competition among the life insurers for the small, largely stagnant market is another

risk that must be managed. Industry risk is high, marked by price wars and rate-undercutting

and the consumer base largely shrinking owing to the business down-turns. The implication

lor risk management is that the firms must embody holistic strategies that seek to counter

both the short- and long-term risks of failure. Counter-measures must be put in place to

handle the downsides that may lead to strategy failures. For instance, to counter the risk of

new product failures, it is important to conduct market research and develop strategy in line

with market preferences.

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1.2 Statement of the Research Problem

Businesses today are exposed to greater risks across the board, ranging from political risks to

product liability and environmental hazard risks. There are also a set of risks to strategy that

have become increasingly disruptive. These include not just the obvious high probability

risks that a new advertisement campaign or new product launch will fail, but other less

obvious risks as well in areas such as technology and customer needs. Failure to anticipate

and manage this spectrum of risks to strategy can expose a company to dramatic decreases in

shareholder value and severe swings in stock prices. In today’s highly competitive global

environment, these failures in attaining key strategic objectives can prove fatal.

Slywotzky (2004) observes that in today’s risk intense environment, firms must manage their

economic and risk profiles more actively. The goal is not to eradicate risk, but to deliver the

maximum reward for an acceptable level of risk. For most companies, traditional financial,

property/casualty, and operating risks are unwanted by-products of the business. Risks to

strategy are different in that companies need to assume and manage them in order to generate

high returns. From a strategy viewpoint, risk and return, therefore, are two sides of the same

coin. Given the nature and importance of strategy in firms, risks to strategy are therefore

unavoidable consequences borne out of the firms’ need to deliver on their vision and mission

objectives.

Risks to strategy are further complicated by the complex nature of the global business

environment. This complexity arises from contextual differences in the various markets that

global firms may operate in espoused by their different value systems. Kenya as a country is

not isolated from these complexities and indeed its unique social, political, economic and

cultural landscape introduces perspectives that create a unique challenge in managing such

paradox. Given the aforesaid, it is the purpose of this study was to establish how these risks

to strategy have influenced the corporate strategy of life insurance firms in Kenya.

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Various studies exist relating to strategy in the insurance industry and life insurance sector in

Kenya (Guya, 1976; Abdullahi, 2000; Wanjohi, 2002; Lengopito, 2004; Wairegi, 2004;

Mkamundul, 2005; Ogolla, 2005; Kerama, 2006; Kitur, 2006). None of these studies is an

investigation of the influence of business risks on corporate strategy in life insurance firms in

Kenya. This is the research gap that this study sought to address.

1.3 Research Objectives

To assess risks as a component of corporate strategy in selected life insurance firms in Kenya

1.4 Value of the Research

For the management of life insurance companies, a better understanding of the assessment of

risks to corporate strategy will be a huge step in spurring effective development and

implementation of company strategy. This will help reduce the risk to earnings or capital that

may arise from either adverse business conditions or potentially improper implementation of

business decisions. Also management will better be able to identify those risks that may pose

the biggest threats in the local business environment and effectively manage these risks. They

will be able to use the findings of the study to project potential pitfalls in strategy

implementation and to develop counter strategies to manage such future hazards. This will be

a useful tool in view of the dynamic business environment to which organizations are

exposed. Consultants in the sector will also be able to use the study’s findings to identify

potential business opportunities in relation to assessment of risks and corporate strategy in

the life insurance sector. They will be able to design solutions based on research studies such

as this one to address problems to corporate strategy that the industry may face. The formal

authorities whose duty is to conduct oversight in the sector will also derive value from the

study. These include the Government of Kenya, the Insurance Regulatory Authority, and

Association of Kenya insurers. They will be able to use the findings of the study to formulate

viable policies that effectively address problems faced in the life insurance sector in relation

to assessment of risks and corporate strategy. The study findings will add value to business

and academic research with their contribution on the Kenyan scenario regarding how risks

influence corporate strategy of life insurers.

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The resources needed to carry out business strategies are both tangible and intangible. They

include communication channels, operating systems, delivery networks and managerial

capacities and capabilities. Risks to strategy encompass more than an analysis ot the written

strategic plan. It focuses on how plans, systems and implementation affect the franchise

value. It also incorporates how management analyzes external factors that impact the

strategic direction of the company.

Unintentional risks are by-products of the strategy planning or execution process or cycle.

For most companies, traditional financial, property/casualty, and operating risks are

unwanted by-products of the business. Risks to strategy are different in that companies need

to assume and manage them in order to generate high returns. Strategic risk and return,

therefore, are two sides of the same coin. Some of the most important forms of strategic risk

and the countermeasures that can be used to address them are as follows.

2.2.1 Market Stagnation Risk

Profitable firms have seen their shareholder value reach a plateau or gradually decline as a

result of their inability to find new sources of growth in the face of market maturity. Market

stagnation limits the upside potential part of the reward/risk ratio and sets up companies for

value loss or stagnation. Stagnation is characterized by flat or declining volumes, price

declines and a weak pipeline. The magnitude of risk from stagnation is characterized as high

(Mango, 2007). This risk is highly correlated to cycle volatility management. Insurers have a

difficult time redeploying their assets, since they are essentially intellectual assets with a

large degree of task specificity and stickiness.

Insurers also suffer from extensive reporting lags and potentially mismatched revenue and

expense. It could be argued that part of the impetus driving insurers to continue to underwrite

business at inadequate prices is the need to fund current-year fixed costs (“plant” expenses).

Stagnation may be aggravated by flawed organizational response plans to market price

cycles, including maintaining premium volume and market share during price declines and

improper performance incentives for underwriters.

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Market stagnation risk has become extremely high for insurance as the world faces a global

economic recession. Premiums have decreased as customers offload low-priority insurance

burdens; life insurance in particular will suffer owing to the need for individuals to prioritize

other more pressing needs like housing and mortgages. Underwriters too have become

choosier in selecting their portfolios. This is occasioned by the high risk of business failures

owing to inability to service debts and increased business risks.

2.2.2 Industry Economics Risk

Slywotzky (2004) observes that the nature of industry economics risk is characterized by

capital intensiveness, overcapacity, commoditization, deregulation and cycle volatility. The

magnitude of risk posed by these variables is very high and insurance markets suffer from all

of these conditions. When an industry becomes mature and highly competitive, a series of

changes tend to occur that can gradually destroy profit margins. Product and service offerings

among various companies tend to grow similar and become commodities; customers get

more and more access to competitive information; and customers grow more willing to

switch suppliers based on a lower price. The risk that an entire industry will become a "‘no-

profit zone” is one that every executive must always be cognizant of, but it’s difficult to

predict when and how it will materialize.

According to Rice (2001), first, there are the macroeconomic trends impacting all financial

services organizations. There is a low inflation environment in all the key global economies.

An integrated European marketplace has been created and there are trends towards economic

unity in other regions. There has been consolidation and convergence throughout the

financial services industry. There have been mergers within the insurance sector, mergers

across financial services sectors and mergers with non-financial services institutions. The

new economy has transformed economic models with an emphasis on earnings. Insurers are

under continuous shareholder pressure to increase market share and wallet share, i.e. share of

disposable income. The information model has also been reshaped, with the consumer as champion.

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Financial services businesses that were once distinct are rapidly becoming one (Carr, 2007).

Convergence has been steadily evolving. Disappearing regulatory barriers have paved the

way for all segments of the financial services industry to sell similar products and services.

Banks are well positioned to utilize their vast customer bases and distribution channels to

cross-sell insurance products. They may also have more credibility than insurers to manage

full service selling of financial products. Insurers have had to develop asset management and

other long-term savings products. Many insurers are now players in retail banking, either

directly or through major shareholdings.

As well as these global economic issues, the landscape of the insurance market has been

significantly influenced by a host of market forces. The pace of consolidation in the financial

services industry over the past few years is unprecedented and consolidation continues to be

the dominant force reshaping the insurance industry around the globe. Driven by the need to

grow market share, provide services, expand distribution capabilities and improve

operational efficiency, many financial services organizations are continuously pressured to

look for synergetic acquisitions and shed unprofitable or non-core business (Slywotzky,

2004).

Consolidation is the result of a variety of factors, including globalization of financial

markets; homogenization of financial products; demands of customers who want to obtain a

full range of financial services from a single institution; lack of opportunities for organic

growth; existence of too many inefficient insurance companies; insurers seeking to acquire

new distribution channels; access to better technology; and the need for entry into new

markets through affiliations and acquisitions. (Rice, 2001).

universityLOWER NAIROBI

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2.2.3 Globalization Risk

Organizations operating in the global marketplace are forced to operate in a “high perceived

uncertainty” quadrant: globalization has increased the complexity and the pace of “change”

to which organizations must adapt and over which they have no control (Robbins, 1983).

With “constant change" as the backdrop, organizations need to realize that their competitive

strategy, which was successful domestically, will not be adequate to manage global

competition. Apart from the resource-related factors, the risk factors (Tayeb, 1992) strongly

tempt companies to go global. Investing in two or more nations enables companies to offset

the economic troughs in one against the peaks in the others, thereby earning a net benefit.

It can be concluded that, while macro-level variables (organizational structure, and

technology) tend to become more and more similar across nations, micro-level variables tend

to maintain their cultural distinctiveness. Thus, ceteris paribus, the cultural dimension forms

the backbone of organizations' strategies in their global balancing endeavors (Ronen, 1986).

Therefore, organizations need to understand the cross-cultural issues which directly influence

management practices. This necessitates maximizing peripheral vision and surpassing

management biases which will facilitate continuous strategic redesign. It is important to note

that globalization and regionalization (cultural literacy) are mutually reinforcing and

complementary and help organizations improve their effectiveness.

The increase in the number of corporations becoming multinational (subsidiaries under the

parent’s control, independent national markets) and global (one single market, autonomous

subsidiaries and pressures for cost competitiveness and local responsiveness) operating over

wider geographical areas and under more diverse socioeconomic and cultural conditions has

resulted in greater uncertainty for managers. Uncertainty means that decision-makers do not

have information about environmental factors, which increases the risk of failure for

organizational actions. Information gathering is the first step in the decision-making process

(McLamey, Dastrala and Cowan, 2001).

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Failure is often due to incomplete or superficial research by organizations, or delayed inflow

of information. Based on this information, decision-makers make choices about goals, budget

allocations, personnel, and the ways in which work is to be done to improve the

effectiveness. This necessitates the allocation of weights, development of alternatives,

evaluating the alternatives and selecting the best option. Decision failure, in most cases, is

because of organizational myopia and the thrust for short-term monetary gains.

Global companies, in general, face challenges in three broad areas: the strategic planning

aspects of their business, internal organization, and the interface between internal and

external aspects of their activities (boundary management) (Tayeb, 1992). Interface activities

require not only business competence and negotiating skills but also the ability to cope with

the national and cultural diversities of the context.

Lachman (1983) argues that only those adaptations that are consistent with and legitimized

by the core values will be more effective. Thus, if an organization engages in activities that

oppose (or challenge) the local cultural values, culturally based resistance may impede the

inflow of resources that are required for effective organizational functioning. Careful

preliminary assessment of compatibility between local core values and those underlying

organizational structures may prevent costly and sometimes irreversible mistakes of

implementation of structures and practices that do not match the local environments. Cultural

congruence is the adaptation of the corporate culture of the firm to the local culture of the

host country and is imperative for global success.

2.2.4 Customer Risk

Another strategic risk is that customer" priorities will shift quickly, reducing demand for a

firm’s current product or service offerings. One powerful countermeasure for managing

customer risk is the use of proprietary information to anticipate the next evolution of

customers’ priorities. This risk can be classified as moderate but can be a big issue for large

commercial insurance businesses (Slywotzky, 2004). Customers are a driving force behind

much of the change occurring throughout the financial services industry today and their

changing needs easily renders innovations obsolete and unprofitable.

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As technology has become more user friendly, consumers have become more self-sufficient.

The share of financial services purchases made through affinity groups has increased. The

role of traditional independent financial adviser (IFA) is being dramatically changed. IFAs

now need to focus on greater value delivery in order to remain relevant in the industry. At the

same time, access to a multiplicity of distribution channels (e.g. call centers, Internet) has

raised consumer expectations for products and services. However, insurers have made little

progress in moving from IFAs and brokers to alternative channels (Rice, 2001).

If there is over supply of goods, consumers may choose what and how much to buy from an

insurance firm at will. If there are substitute products, the consumers of insurance products

may use perfect market information and push for backward integration (Pearce and

Robinson, 2005). Over time, consumers gain power when the numbers of suppliers of

undifferentiated insurance products increase in a market. As a result they become price

sensitive and can easily switch to a rival competitor in case of a substantial price increase by

a given seller (Porter, 1980).

Thus, consumers can exert influence and control over an industry when there is little

differentiation over the product (standardized products) and substitutes can be found easily;

customers are sensitive to price; and switching to another product is not costly, there is a low

concentration of customers-probably a few dominant consumers and many sellers in the

industry, where customers are making big profits, differentiation of product and services

quality encouraging a move towards those insurers offering high quality and ability of

consumers to achieve backward and forward integration in the industry.

Price can be said to be the amount of money consumers are willing to pay for insurance

services. The best competitive advantage in a market is the lowest price. In order for a

product to command a reasonable price relative to the market, the value chain process must

be well configured to generate efficiency and so as to contribute to the final selling price.

Some sellers use various pricing policies such as cost based while others may use market

based approach (Kotler, 2004). Consumers are highly price sensitive and almost always tend to switch to the lowest costs alternative.

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2.2.5 Regulation and Deregulation Risks

The government is a major player in markets and marketing in the sense that it gives the legal

rules of the game in a given political environment. Conducive political environments offer

security for businesses to thrive. Stringent government regulations introduce checks, such as

on substandard or unroadworthy goods entering the market, hence protecting citizens from

exploitation; or it can be such that the rules are acting against industry players to facilitate

ease of trading. The government must also be careful of retaliations between stakeholders

and formulate policy on how to handle the consequences (Pierce and Robinson, 2005).

Entrepreneurs in rigidly controlled environments tend to get demotivated and labour turn

over might be experienced.

Regulatory changes are dismantling the protective barriers that once separated insurance

companies and commercial and investment banks (Rice, 2001). Cross-border regulations are

being standardized. Forced to compete with more nimble, lower cost, customer-focused

providers, financial services institutions are reassessing their value and positioning in the

marketplace. Access to capital is imperative, hence the focus on demutualization. Host

government’s role, in international business, is essentially that of a catalyst, to facilitate

organizational goals by way of encouraging policies that would create more demand in the

long run. Organizations sometimes ignore the legitimate role that governments play in

shaping the context and the structure surrounding them that stimulate (or subdue) their

competitive advantage. Host governments especially can quite easily nullify an insurance

firm’s source of competitive advantage.

Governments at all levels (local, state and national) affect the resource transactions of

organizations in two general capacities (McLarney et al., 2001). First, as a source of authority

specilying what types of negotiations and exchanges can legally occur among organizations.

Second, as parties that directly engage in transactions with organizations, exacting resources

from some and providing them to the others.

15

The misfit between the organization and the local government objectives causes a continuous

power struggle which, obviously, involves a moral and social cost. Hence the organization

should work for the transformation of those power relationships into mutual trust and

cooperation; that means flexibility and inventiveness become a necessity. Thus,

organizational models have to be continuously confronted with reality. Organizations should

learn from observation and practice but have to admit their cognitive limitations because of

the rapidly changing environmental dynamics (time and space).

2.2.6 Technology Risk

Slywotzky (2004) notes that when a new technology takes hold in the marketplace, specific

product and service offerings may become obsolete in short order. For example, in recent

years mobile telephony has stolen market share from fixed-line voice communications, and

digital imaging has taken share from film-based photography. The use of e-business and the

Internet for purchasing and servicing financial products is still relatively new, but is having a

profound impact on the industry, in the areas of increasing revenues and reducing costs. New

technology challenges the traditional insurer; it changes distribution channels, it can devalue

brands, it can facilitate customer relationship management and it is an enabler of change.

Technology can help companies to increase revenues by allowing them to enter new markets,

attract and win new customers and develop customer and market insight.

Carr (2007) warns against implementing new technologies in a rush to gain competitive

advantage. Carr describes information technology as a commodity. And he compares IT to

electricity in the 1800s, which he says gave companies strategic advantage until everyone

began using it. According to Carr (2007) any technology that can be protected and kept

private, often through a patent or an exclusive license, is proprietary. Proprietary

technologies can provide a strong source of competitive advantage, because they're hard for

competitors to copy. The defining characteristic of an infrastructural technology, on the other

hand, is that it provides its greatest value and its greatest productivity gains only when it's

broadly shared by many companies and industries.

16

Most IT-based competitive advantages simply vanish too quickly to be meaningful. When

information technology was in its early stages of adoption, it tended to be very expensive. At

that time, it was hard to create new software, expertise hadn’t yet diffused throughout the

industry, and it was difficult for competitors to copy innovations. Since then, IT has matured

as a technology. It’s become cheaper, more standardized and homogenized, and best

practices are shared widely (Pine, 1992). These things erode its ability to provide competitive

advantage, because they make it easier for competitors to replicate any new innovation. A

firm can still be an innovator with IT, but the advantages that those innovations create tend to

vanish quickly as competitors and vendors copy what the firm has done and incorporate it

into their own systems or their own products.

Software and hardware are both viewed as commodities as business IT hardware has become

increasingly commoditized (Carr, 2007). As companies adopt different systems and as

vendors compete to sell them to more and more customers, any valuable system tends to be

copied throughout an industry. Most IT expenditures for insurers can be looked at as costs of

doing business rather than as a way to gain a competitive advantage. The insurance industry

can take advantage of this through looking for ways to standardize their systems, consolidate

their systems and capitalize on the commoditization trend to push down the cost of

computing within a company. Taking a more conservative approach toward IT can really pay

off for insurers as we continue to move into this more commoditized IT world.

Commoditization and loss of competitive advantage arise because the great value of IT

comes when it becomes standardized. When all companies own systems that can be

integrated easily within their organization and with their suppliers’ and customers’ systems,

there is great benefit. The need to standardize, in effect, promotes commoditization because it

turns the technology into a shared infrastructure, just like the rail system or the electrical grid.

17

The great danger of expecting too much from information technology is it often leads firms

toward customized software, which sometime is necessary, but shouldn't be the default

position. For many companies today, the biggest IT risk is an integration challenge

(MacDuffie and Helper, 2003). Making all the customized systems that they've invested in

over the years work together in a seamless way is a challenge. The worst thing the firms can

do at this point is to perpetuate those integration difficulties with innovative systems

designed to bring competitive advantage.

In order to make IT more valuable to business, firms must find ways to capitalize on the

commoditization trend in order to drive down the cost of computing while still getting all the

capabilities and benefits they require. Second, it is important to be wary of trying to be an IT

pioneer (Day. and Bens, 2005). If a firm is out on the cutting edge, it will pay a lot more and

assume on a lot more risk. Therefore, in most cases, it makes sense to be a fast follower, wait

for standards to emerge and costs to come down. Finally, if the firm is going to seek IT

innovation, it should look to see if there are ways to push down the costs of being an

innovator on to suppliers or other partners. And it should make sure the competition will face

barriers to replicating the innovation. If there’s no way to reduce the cost of being an early

mover and there are only weak barriers to competitors copying what the firm is doing, then

being an IT pioneer probably is foolhardy.

2.2.7 New Project Risk

Project risk is characterized by the failure of Research and Development (R&D), information

technology, business development, value-destroying mergers and acquisitions. They are also

notoriously small investors in R&D and IT, which is ironic given the nature of the

intellectual capital franchise. This risk is categorized as high (Mango, 2007). Any new

product or service venture involves various risks e.g. it will fail to attract profitable

customers, competitors will quickly copy it and poach market share, and the venture’s growth will be too slow or costly.

18

Many new products ultimately fail in the marketplace, resulting in massive financial losses

(Urban and Hauser, 1993). Although in financial services it has been claimed that financial

losses can be low, there are numerous hidden costs to be considered. These include the waste

of managerial time and effort, the effect of failure on corporate image, and the loss and

constraints implied from used resources. Furthermore, the product may not be withdrawn

once launched, and resources have to be absorbed in maintaining and supporting it for

existing users.

In services, co-ordination and co-operation are further relied on as service heterogeneity

leads to greater interdependence between operations and marketing. Synergy appears to be an

underlying requirement for success in the services industry. Synergy is not, as a number of

researchers have misinterpreted, the extent to which a new service fits the competencies of

the firm (Atuahene-Gima, 1996). The service must benefit from the strengths and facilities in

such a way that the combined effort is greater than the performance would be if the new and

established services were working apart. In prioritizing new service ideas, synergy emerges

as a strong predictor of success in terms of the firm’s ability to benefit from its existing

delivery systems, human resources, sales and market research and managerial skills.

It is important to determine which of these factors induce a significantly different

performance among services. The factors may well appear in both successful and failed

sendees, but it is the intensity with which they were carried out that significantly

discriminates between the two. Efficiency affects the success and failure of a new service. In

the literature regarding goods, the quality of execution is strongly associated with project

outcomes. For example, a strong market orientation, marketing proficiency, implementation

ot market research, and effective advertising, promotion and launch were found to be

correlates of success (de Brentani, 1991).

19

Examples of well managed, efficient activities are defined as follows: formal as opposed to

informal planning, well defined product concept screening, good market research,

measurement of performance, clearly defined benefits and a well defined target market.

Service development is not known for physical prototype testing, but there is a need for the

testing of the service systems. Such improvements of technology and the adaptation of

systems can improve the cost performance of financial institutions (Johne and Storey, 1998).

It is well-known that a strong marketing orientation, that is understanding and responding to

customer needs, and involving the marketing function throughout the development process,

is as important for developing successful services as it is for developing new physical

products (de Brentani, 1993). This is achievable by acquiring knowledge through the results

of efficiently conducted and detailed market research, although in financial service firms the

use of classical test marketing is often considered limited .

Proficiency in launch effort necessitates clear and detailed documentation of the various

activities. Details of activities associated with promotion may need to be specified regarding

the correct use of advertising skills and promotion strategies. Expenditure on distribution is

also important in launching a new service efficiently, or with quality. Atuahene-Gima (1996)

found that, for financial and computer services in Australia, the proficiency of launch

activities had a significant and positive impact. Launching at the wrong time increased the

probability of failure.

The findings presented by Edgett (1993) and others tend to corroborate preliminary evidence

which suggested that a formal approach to the development of products has not been applied

by financial institutions, although, in Johne and Storey’s (1998) review of the new service

development literature, it was noted that top performing banks have more formalized and

better structured development programmes than lesser performing banks. It has been noted

that there are many reasons for success and failure. There has been notable insight from

previous studies suggesting that both services and manufacturing firms need to give attention

to similar factors, but with different degrees of emphasis to ensure higher innovation performance.

20

2.2.8 Competitor Risk

Competition is the normal equilibrium of business. Competitor risk refers to the possibility

that a one-of-a-kind competitive threat will emerge to take aim at a market and perhaps drive

established companies out of business. These competitors could be global rivals, or gainers

who pose a moderate magnitude of risk (Mango, 2007). There are potential entrants in every

market who want to penetrate through lines of weaknesses of the existing firms in the

industry. If entry barriers are high and exit barriers low, such markets are attractive, as they

are considered to have high profit potential. Markets with low barriers to entry but high

barriers to exit trap firms in and such firms only compete for survival with low profits

(Porter. 1980). An entrant may be having a heavy capital investment and this would give the

firm an advantage in terms of mass production and ability to access distribution channels.

The firm may be having a strong brand and unique product differentiation.

The threat of new competition is high when it is easy for new competitors to enter the

industry i.e. entry barriers are low (Pearce and Robinson, 2005). New entrants will look at

how loyal customers are to existing products, how quickly they can achieve economy of

scales, whether they have access to suppliers and whether government legislation prevents or

encourages them to enter the industry. The threat of new entrants is also high if the industry

offers economies of scale, high capital/investment requirements, low customer switching

costs, good access to industry distribution channels, easy access to technology, low brand

loyalty encouraging switching, low likelihood of retaliation from existing industry players

and favorable Government regulations such as subsidies and tax incentives.

The intense rivalry among the existing competitors would mean that firms might find it

difficult to expand market share. Capital cost might be high and hence exit barriers will also

be high. Therefore, in order to secure a large market, firms start advertising and price wars

become common. Due to this, price reductions occur and by so doing, reduce the margins of

the competing firms (Porter, 1980). If entry to an industry is easy, then competitive rivalry is

likely to be high. If it is easy for customers to move to substitute products then again rivalry will be high.

21

Generally competitive rivalry will be high if there is little differentiation between the

products sold between customers; competitors are approximately the same size; competitors

all have similar strategies; and it is costly to leave the industry hence they fight to just stay in.

This is basically true to the insurance industry in Kenya where the market is constricted and

the products are basically homogenous leading to a lot of undercutting between the insurance

firms. A firm carrying huge fixed costs might find it difficult to leave the insurance sector in

the event of increased competition. It must struggle to analyze the complex information in

the market so as to outsmart its rivals in terms of business. If the firm has highly

differentiated products and strong brands, it can survive (Pearce and Robinson, 2005).

Thus, industry rivalry is determined by the structure of competition - rivalry will be more

intense if there are lots of small or equally sized competitors and will be less if an industry

has a clear market leader; the structure of industry costs-industries with high fixed costs

encourage competitors to operate at full capacity by cutting prices if needed; degree of

product differentiation-industries where products are commodities (e.g. steel and coal)

typically have greater rivalry since the is low product differentiation; switching costs-rivalry

is reduced when buyers have high switching costs; strategic objectives-if competitors pursue

aggressive growth strategies, rivalry will be more intense. If competitors are merely

“milking” profits in a mature industry, the degree of rivalry is typically low; and exit

barriers-when barriers to leaving an industry are high, competitors tend to exhibit greater

rivalry.

Typically, discussions of the benefits of competition and regulatory reform focus on price

and quantity effects in the market under consideration. However, improvements in certain

infrastructure services also can stimulate entry and competition in downstream user

industries, allowing new firms to enter, incumbent users to offer new products, and rivalry to

intensify (Porter, 1980). To the extent that reform spurs innovations in infrastructure services

and these innovations in turn generate substantial new downstream activities, the economy

wide benefits of regulatory reform are likely to be substantially greater.

22

Predatory pricing is a significant risk, since market share can be grabbed fairly easily by

carriers willing to write the coverage at a discount to incumbent carriers. Such carriers

normally charge lower underwriting costs compared to the incumbent. There is also the risk

of entrance into new (or significant growth in existing) lines or territories with inadequate

underwriting expertise, pricing systems, price monitoring capabilities, policy servicing

capabilities, understanding of regulatory requirements, claims handling staff, etc. Destructive

competition from multiple competitors simultaneously targeting the same market segment

(unilateral planning, failure to anticipate strategic changes of competitors) is an added risk

(Mango, 2007).

2.3 Risk Mitigating Measures

Companies exploring the frontier of management of risks to strategy don’t hide from risk.

Instead, by actively defining and preparing for risk, they make themselves less vulnerable to

risk events than other companies. This allows them to be both aggressive and prudent in

pursuing new growth and to avoid possibly one of the biggest business mistakes-not taking

the right growth risks for the business. Furthermore, they use their insights into the nature of

risk to raise their value to customers.

Applying proprietary information and unique know-how to the risk challenges their

customers face, they ally themselves more closely with customers, establishing long-term

planning connections, multiple points of contact, and more powerful, longer-term

relationships. This reduces customer turnover, which in turn diminishes long-term strategic

risks for both customer and supplier. By definition, a higher-risk environment makes it

harder for businesses to protect and grow shareholder value. The right mindset and an arsenal

of countermeasures can help companies improve their risk/reward profile in these volatile

times (Rice, 2001).

23

The best countermeasure to hedge against market stagnation risk is innovation, which

involves redefining your customer ollerings so as to broaden your market, expand the value

you can offer your customers, and strengthen your relationship with them (Rice, 2001). The

increase in context turbulence and the constant nature of discontinuous change in today’s

economic and competitive environments make it crucial for firms to learn to govern

contradictions (Nonaka and I oyama, 2002). I he consequences of the environmental changes

that have occurred in the recent past have, in tact, made it essential for firms to be capable to

innovate more rapidly in order to keep up with the shortening of product/industry life cycles

and with the general increase in global competition.

Market research provides a means lor understanding the consumer purchase decision and

anticipating consumer behavior. In the product development process, use of market research

focuses on identifying opportunities tor product innovation and understanding the evaluative

criteria used by the consumer in reaching a purchase decision (May-Plumlee and Trevor,

2006). Product development methods and models used by firms include focus groups, limited

rollout, concept tests, show tests and clinics, attitude and usage studies, conjoint analysis,

Delphi technique, quality function deployment, home usage tests, product life cycle methods and synectics (Mahajan and Wind, 1992).

Ihe most etfective proven countermeasure to industry economics risk is to shift the

compete/collaborate ratio among the relevant firms. Collaboration can take many forms

including sharing ot back-office functions, asset sharing or co-production agreements, repair

or maintenance collaboration, purchasing and supply chain coordination, joint research and

development, and collaborative marketing. Most companies begin collaborating five to ten

years too late. When the industry is new and growing and margins are fat, the industry can

afford to support a compete/collaborate ratio close to 100/0. The ratio begins to shift only

when margins have eroded, as has happened with airlines, utilities, steel, computing, and

memory chips. The challenge is to anticipate the threat and prepare by laying the groundwork lor collaboration in advance (Rice, 2001).

24

ERM modeling can be used to manage industry economic risk through simulation based

testing in asset risk management. Asset strategies are tested by simulating the returns of

portfolios selected by different strategies. Each strategy is represented as a set of asset

selection rules. These rules are repeatedly applied to “rebalance” the portfolio in response to

the environment changes as the simulated scenario progresses. Examples of rebalancing

activities might include selling bonds that have matured, reducing allocation to an asset class

that has appreciated in value relative to other classes or buying more taxable or tax-exempt

investments in response to portfolio tax position.

This process is repeated for each strategy, for each scenario. The “best” portfolio is the one

whose distribution of total returns is valued most highly (Mango, 2007). The evaluation can

be based on both reward goals and risk constraints. The first step in strategy testing is the

capture and encoding of essential environmental variables necessary to determine the “state

of the world” and, therefore, ultimately used to select the course of action. Users must also

define performance quality in terms of desirable goals (net income, economic value) and

undesirable downside constraints.

The trend to commoditization can be contained through patenting. Patents granted by a

country generally prevent people other than the inventor from making, using, offering for

sale, selling the invention, or importing the invention into the country concerned for a period

of time, usually 20 years. Besides patents, there are other forms of intellectual property

protection afforded by international agreements and national laws including copyrights,

trademarks, geographical indications, industrial designs, layout designs of integrated circuits

and trade secrets. Nevertheless, of these, patents provide the strongest form of intellectual

property protection (Hicks and Holbein, 1997). The common characteristic found in all these

various forms of intellectual property protection is the exclusive right to exclude others from certain activities.

25

Underlying responses to global competition/risk has been the recognition of the role of

product and process improvement in business strategy. Throughout the 1990s, firms

examined and, in many cases, changed their quality focus. Instead of relying on inspecting

quality into products, they emphasized improving product and process design, implementing

process control, and continually improving processes. Total quality management became a

major element in corporate strategy. Indeed significant numbers of large firms adopted

quality programs during the 1990s (Hiam, 1993) though with mixed results.

Top management’s strategic priorities are defined as management’s strategic orientation

towards achieving competitive advantage and how their organization competes in the market

place. Five priorities frequently cited in the literature were identified: flexibility, quality-

based differentiation, low-cost production, innovation, and time-based competition. As

described earlier, quality management has played an increasingly prominent role in strategic

planning in recent years. While a plethora of approaches to quality management have been

used, little agreement exists on how to deploy them, what programs work, and how specific

initiatives relate to broader strategic objectives (Greene, 1993).

One powerful countermeasure for managing customer risk is the use of proprietary

information to anticipate the next evolution of customers’ priorities (Rice, 2001). In both

business and consumer markets, there are ample opportunities to take on the challenge of

helping customers reduce their own risks. By doing so, suppliers can expand their revenue

and profit streams, strengthen their customer relationships, and further improve their ability to plan.

On the consumer side, risk is more commonly perceived in terms of time, hassle, and

security. For instance, coping with a car accident is the most time-consuming and hassle-

filled experience associated with car ownership.

26

When considering regulation/de-regulation risks, it is imperative to realize that organizations,

as open systems suggest, are never in complete equilibrium with their environment. Any

view of absolute stability or full compatibility is just a mirage. Depending on the

organization’s pace of adaptability, it may be in a state that is close to or far from equilibrium

(McLarney et al., 2001). Essentially, the external environment comprises socio-cultural,

economic, legal, political and technological variables, of which the socio-cultural and the

political are the controlling parameters. The factors in the social environment like structure,

social values and expectations, often influence the social matrix.

Similarly, governments at both national and local levels can affect companies, not only on a

day-to-day basis through laws, policies and its authority, but also at a strategic level by

creating opportunities and threats (Porter, 1980). Often political analysis is necessary in

managing change: finding who is antagonistic, who is supportive, and what avenues need to

be pursued for implementation. For firms to be to be truly effective they must understand and

adapt to the core cultural values of the host country. By ignoring these values, they risk not

being able to secure the necessary resources for their organization. Thereby they put the

organization at risk of failure in the foreign venture.

Smart managers “insure” against technology risk by double betting, i.e. investing in two or

more versions of a technology simultaneously. That puts them in a position to survive and

thrive no matter which version emerges as the winner. The winning firms are those that will

add value, the losers will not. Insurers must redefine themselves as “sense and respond”

organizations. They must listen to their customers and change quickly to address these needs.

The winners will be those insurers who know what business they want to be in; focus on

long-term revenue growth; are cost-effective; organize around the needs of the customer;

attract and retain the right people; develop alternative distribution channels; and who invest

appropriately in technology (Rice, 2001).

27

The two crucial countermeasures that companies should use to manage competitor risk

include an early warning system and, when appropriate, a shift in business design to respond

to the threat when it appears. An early warning system means continually scanning the

competitive horizon, mapping the moves of major companies in and around the marketplace

(Rice, 2001).

Foreseeing the onslaught of an extraordinary competitor isn’t enough by itself; the firm must

be ready to shift its business design (changing customer selection or value proposition or

both) as needed to establish a survivable niche. This could entail cost leadership,

differentiation or focus strategies (Porter, 1980).

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This chapter introduces the research procedures deployed in conducting the study. These

include the research design, data collection and data analysis methods.

3.2 Research Design

The research employed an descriptive survey design. Kotler and Armstrong (2001) observe

that this method is the best suited for gathering descriptive information; where the researcher

wants to know about people’s feelings, attitudes or preferences concerning one or more

variables through direct query.

3.3 Population of the Study

The population of the study consisted of only those insurance firms involved in life

insurance. These are a total of 23 firms (Appendix 3). Since the population is small, the study

adopted a census design.

3.4 Data Collection Method

Data was collected by means of a questionnaire, which consisted of open-ended questions,

closed-ended questions and matrix-type questions (see Appendix 2). These were

administered to the respondents using hard copies sent by hand or soft copies sent via

electronic mail. For those sent by hand, the “drop and pick later” method was used. The

questionnaire was divided into Part A, which attempted to capture general information about

the respondent organization, and Part B, which addressed the objectives of the research. The

respondents were senior managers whose functional role included company strategy affairs.

One questionnaire was submitted per respondent organization. SPSS software was used to analyze the data.

Data analysis was conducted using descriptive statistics, which included measures of central

tendency, measures of variability and measures of frequency among others. According to

Mugenda and Mugenda (1999) descriptive statistics enable meaningful description of a

distribution of scores or measurements using a few indices or statistics. Measures of central

tendency (the mean values) gave us the expected score or measure from a group of scores in

a study. Measures of variability, such as standard deviation, informed the analyst about the

distribution of scores around the mean of the distribution. Frequency distribution showed a

record of the number of times a score or record appeared.

3.5 Data Analysis Method

30

CHAPTER FOUR: DATA ANALYSIS AND

INTERPRETATION OF RESULTS

4.1 Introduction

This chapter discussed the findings of the research in relation to the research objective. Just

to recap, the research had one objective. This was to assess risks as a component of corporate

strategy in selected life insurance firms in Kenya. In order to attain this objective, a

descriptive survey study was conducted. The research instrument used was a questionnaire

administered by the researcher. The questionnaires were mostly well filled albeit some had

blanks left. The response rate was 57%, which was considered satisfactory in line with

Mugenda and Mugenda’s (1999) observation that a response rate of 50% is sufficient for

purposes of statistical analysis.

4.2. Analysis of Company Bio-Data

Table 4.1: Company Bio Data

Count Col %The answer that best represent the ownership composition of your company

Local 9 69.20%Part local/ part foreign 4 30.80%

Group Total 13 100.00%

Kindly indicate whether your company isPrivate owned 10 76.90%Part private/ part public 1 7.70%Public owned 2 15.40%

Group Total 13 100.00%Is your company listed on the Nairobi stock Exchange

Yes 2 15.4%No 11 84.60%


Indicate below the best representation of your company's size in terms of number of staff

10-50 2 15.40%50-250 8 61.50%Above 250 3 23.10%


This section presented the findings of the first part of the questionnaire appertaining to

respondent bio-data. The findings are presented in Table 4.1 and Figures 4.1 through to 4.4.

Of the firms that responded, 69.2% were local while 30.8% were part local-part foreign owned (Figure 4.1).

31

■ Local ■ Part local/ part foreign

Figure 4.1: Proportion of Firms that were Locally Ow ned to Part Local/Part Foreign

Again, 76.9% of these were private, 15.4% were public firms while 7.7% were part

private/part public companies (Figure 4.2).

Figure 4.2: Private versus Public Ownership

I With regard to listing in the stock exchange, 15.4% were listed while the majority 84.6% I Were not listed (Figure 4.3).

32

listed on the N SE Yes listed on the N SE N o

Figure 4.3: Listed versus non-Listed Firms

Finally, of the firms interviewed, 15.4% had 10-50 staff members, 61.5% had 50-250 staff

members while 23.1% had above 250 staff members (Figure 4.4).

Figure 4.4: Best Representation of Staff Size

33

This section analyzes the results of primary data collected addressing the research objective.

This data relates to eight major risk categories that were identified in the literature review as

affecting the insurance industry. The data is presented in graphical and tabular form for ease

of interpretation and inference. Relevant literature was weaved in to support key observations

of the major findings. Findings were discussed in relation to the five point Likert-type scales

with the rankings ‘1 = no extent’ to ‘5 = greatest extent’, to rank the various risks according

to the extent to which they affected the industry. For each response category, the mean values

and standard deviations were computed using SPSS software (version 11.2). Mean values are

an indicator of the extent of the influence of each risk parameter on the industry. High mean

values for a given risk variable indicates that that variable had a large effect and vice versa.

The observed mean values were notionally rounded off to two decimal places and assigned a

meaning derived from the nearest corresponding point on the Likert scale, e.g. 1 = no extent,

2 = small extent and so on. The standard deviation values are an indicator of the extent to

which respondents were in agreement over the extent of the effect of any given risk

parameter on the industry. For purposes of this study, standard deviations greater than 1.00

indicated a high dispersion about the mean (high levels of disagreement) while those below

1.00 indicated a relatively high clustering about the mean (close agreement). The former

implies that the respondents differed widely in how they rated the given risk aspect while the

latter implies that they gave largely similar ratings.

4.3 Analysis of Responses in Relation to the Research Objective

I able 4.2: Means and Standard Deviations for the Variables

Risk Type Mean Std. Deviation

Competitor risk 4.00 0.953J^8}dation and deregulation risk 3.58 1.084Jll^H^O^conomics risk 3.55 0.934Customer risk 3.42 0.793

_Market_stagnation risk 3.36 1.206Je^hnology risk 3.17 1.030-il^Project risk 3.00 1.044—^ ^ I^ tio n risk 2.55 0.522

34

■ Std. Deviation ■ M e a n

Globolization risk

New project risk

Technology risk

Mkt stagnation risk

Customer risk

Industry econ risk

Reg & dereg risk

Competitor risk

□

10.793 |______i p H ---- - p u n y 3.42

—1

■M M M i^M H ^^M ilM M H M

3.5 4

Figure 4.5 Means and Standard Deviations Illustrated

4.3.1 Competitor Risk Attributes

This risk attribute had the highest mean value of 4.00 (a high extent) and a standard deviation

of 0.953, that indicated relatively close agreement among the respondents regarding its threat

level to industry strategy. Other attributes from the unstructured responses are indicated in

Table 4.3 below.

fable 4.3 Competitor Risk Attributes

Risk Categories Attributes

Competitor RiskCompanies compete for the restricted market which is not made any better by the worsening economic situationsFund managers targeting large guaranteed retirement funds to invest on segregated basisLow fee levied to retain clients while providing no guarantees

e feature of low fees levied to retain clients while providing no guarantees reflects the

Servation by Mango (2007) of destructive competition from multiple competitors

35 S SITY °F NAIROBI LOWER KA1 : L'^FIARY

simultaneously targeting the same market segment. There are no guaranteed returns despite

the tactic used. Competitor risk is also seen in the competition for as static market and for

mutual funds.

4.3.2 Regulation and De-regulation RiskThis risk aspect had a mean value of 3.58 (a high extent) and was rated second among the

risk classes. A high standard deviation greater than 1.000 indicated lack of close agreement

among the respondents as to its effect. Rice (2001) observes the removal of protection

barriers that characterized the financial services industry. From Table 4.4, raised share capital

is one such instance where regulation moves to protect the consumer, rather than the firm.

There is also the insistence by Government on separating business lines (life and non-life) to

allow increased development as well as an insistence that firms be run professionally.

Table 4.4: Regulation and De-regulation Risk Attributes

Risk Category Attributes

Regulation and Deregulation Risk

Some firms struggle to comply with the raised share capital for life insuranceFirms to be run professionallyFirms which are composite to separate the business to allow each line of business to developIntroduction of various service providers to manage pension business in transparent mannerIncreased operation cost

4.3.3 Industry Economics Risk

Industry economics risk had a mean value of 3.55 (high extent) and a standard deviation of

0.934. Sly wotzky (2004) observes that the nature of industry economics risk is characterized

by among others, overcapacity, commoditization, and deregulation. In the Kenyan scenario,

overcapacity, commoditization and deregulation are prominent. Low levels of market

penetration are indicators of excess capacity; lack of product innovation indicates a tendency

towards similar global financial offerings, which is an indicator of commoditization.

36

Table 4.1: Industry Economics Risk Attributes


Industry economics risk

Price fixing through cartelsA lot of undercutting especially in regards to group life business as the industry competes for constricted marketLow level of market penetration worsened by excessive poverty and high level of income disparityLack of awareness and knowledgeNo new products being developed in the market

4.3.4 Customer Risk AttributesThis attribute had a mean value of 3.42 (fairly high extent) and a standard deviation of below

1.000 indicating a close agreement among the respondents. Shift in customers’ needs and

wants resulting in reduction of expected premiums, quick shifts in customer priority and

companies not well equipped to deal with customers demand are factors highlighted by

Slywotzky (2004) (where the author observes rapidly changing customer priorities) as

contributing to a high level of customer risk. Earlier responses point to a lack of producer

innovation, and an attendant trend towards commoditization-this implies an increase in

consumer bargaining power as per Porters (1980) observation that consumer power increases

with an increase in the number o suppliers of undifferentiated goods in the market.

Tabic 4.2: Customer Risk Attributes


Customer risk

Shift in customers’ needs and wants resulting in reduction of expected premiumsMost Kenyans are not educated on the role of the life insurance industryNew products developed includes Unit trust and Unit linked productsQuick shifts in customer priorityCompanies not well equipped to deal with customers demandChange in reinsurance arrangement affects prevailing business relationships

37

4.3.5 Market Stagnation Risk

From I able 7 below, there is evidence of price wars and reduction ol shareholder

contributions contributing the stagnation in the market. Mango (2007) observes that this risk

is real and high and is characterized by flat or declining volumes, price declines and weak

pipeline. The Kenyan industry is witnessing a plateau in share holder value owing to lack of

new sources of growth. Responses indicate that market stagnation does exists in the Kenyan

industry. In this state, Mango (2007) observes that profitable firms have witness their

shareholder value reach a plateau or gradually decline as a result of their inability to find new

sources of growth in the face of market maturity. Market stagnation limits the upside

potential part of the reward/risk ratio and sets up companies for value loss or stagnation. The

magnitude of risk from stagnation is characterized as high.

Table 4.3: Market Stagnation Risk Attributes


Market stagnation risk

/

Undercutting through price warsReduction in the input of funds by shareholders resulting in payment delaysLow productivity hence declining profits for the companyMarket has not fully maturedRegulators may freeze new licenses

4.3.6 Technology Risk AttributesTechnology risk had a mean of 3.17 (a fairly high extent) and a standard deviation greater

than 1.000 that indicated a wide dispersion about the mean. Slywotzky (2004) notes that in

recent years mobile telephony has stolen market share traditional means of transacting

business. In our study, a prime example of technological innovation at its best in re

engineering business is the use of M-PESA, a mobile money transfer system, to pay

insurance premiums. The attendant technological risk is increased by the nature of the

innovation. Day and Bens (2005) also emphasize the importance of reducing the cost of

technology and raising barriers to replication in order to secure a fast mover advantage.

38

Table 4.4: Technology Risk Attributes


Technology risk Payment of premiums through the use of M-PESA, direct debit and updating customer through their mobile phonesRedundancy in IT systemIncrease expenses / cost of updates

4.3.7 New Project Risk Attributes

New project risk had a flat mean value of 3.00 (a fairly high extent) and a standard deviation

greater than 1.000 that indicated a lack of close agreement among the respondents. Mango

(2007) observes the existence of value-destroying mergers and acquisitions, also noted in this

study (Table 9). Also noted is the fact that products don’t do well due to changing economic

situation, a fact that Urban and Hauser (1993) observe is responsible for massive financial

losses. They propose a comparative study between factors that affect new product successes

and failures in order to isolate the discriminatory variables and influence them to ensure

success.

Table 4.5: New Project Risk Attributes


New project risk Products don’t do well due to changing economic situationCompanies merging expecting increase in their market shares and failing laterIncreased uncertainty in business

39

4.3.8 Globalization Risk Attributes

Globalization risk had the lowest mean value (2.55) (and was thus the lowest rated attribute)

and also had the lowest standard deviation (0.522) indicating the highest level of agreement

among the respondents as to its impact on the industry. Influx of foreign underwriter into the

local market and coming in of new companies especially from South Africa with a lot of

capital at their disposal are attributes that are particularly relevant here. McLamey, Dastrala

and Cowan, 2001 observe that globalization has created uncertainty owing to the number of

Table 4.6 Globalization Risk Attributes

Risk CategoryAttributes

Globalization riskInflux of foreign underwriter into the local marketComing in of new companies especially from South Africa with a lot of capital at their disposal

' Investment returns have reduced following the global credit crunchIncreased competition

/ Fluctuations in rates of exchangeDownward trends in investment in the stock exchange

firms becoming multinational and global. Uncertainty means that decision-makers do not

have information about environmental factors, which increases the risk of failure for

organizational actions. This factor has also affected the new project risk attribute above.

Increased com petition can also be viewed in the light of the increased globalization and the

market entry of new firms. Pearce and Robinson (2005) also note that the threat of new

competition is high when it is easy for new competitors to enter the industry i.e. entry

barriers are low. New entrants will look at how quickly they can achieve economy of scales,

whether they have access to suppliers, high capital/investment requirements, low customer

switching costs, good access to industry distribution channels, easy access to technology, low

brand loyalty encouraging switching, low likelihood of retaliation from existing industry

players and favorable Government regulations such as subsidies and tax incentives.

40

CHAPTER FIVE: SUMMARY, CONCLUSION AND

RECOMMENDATIONS

5.1 Introduction

This chapter summarizes the findings, draws conclusions relevant to the research, and makes

recommendations on the same.

5.2 Summary of Findings

The research objective was to assess risks as a component of corporate strategy in selected

life insurance firms in Kenya. The top three risk attributes were competitor risk, regulation

and de-regulation risk and industry economics risk respectively. Competitor risk was

characterized by companies competing for the restricted market which was not made any

better by the worsening economic situation, fund managers targeting large guaranteed

retirement funds to invest on a segregated basis and low fees levied to retain clients while

providing no guarantees./

Competitive risk is high owing to the fact that life insurance has a low penetration in the

Kenyan market. The 23 insurance firms are reduced to competing for a small and stagnant

market share. Entry barriers are high owing to regulatory requirements that impose capital

and other requirements in order to safeguard policy holders against company failures and

therefore the threat of new competition is low. It is plausible that customer switching costs

are low owing to the fact that premiums are pegged on a certain level of customer loyalty to

the insurer if at all the policy holder is to receive the benefits expected from premium

payments. Regulation and de-regulation risk attributes were characterized by the fact that

some firms struggled to comply with the raised share capital for life insurance, the insistence

that firms be run professionally, the requirement that firms which were composite be required

to separate the business to allow each line of business to develop, the introduction of various

service providers to manage pension business in a transparent manner and increased

operation costs. Government is a key player in that it offers the legal rules of the game and

creates the enabling environment or business to thrive.

41

In the insurance industry, one key manifestation was the raising of share capital. This aspect

of regulation has far reaching consequences as it may force insurers to merge or acquire other

firms in order to satisfy the capital requirements. It will also influence the competitive risk

element in the industry. Certain aspects of regulation may increase the cost of doing business

owing to higher compliance costs in the industry. Requiring composite firms to separate their

business will entail having separate resources for each business line adding on the costs.

Industry economics risk was characterized by price fixing through cartels, a lot of

undercutting especially in regards to group life business as the industry competed for a

constricted market, a low level of market penetration worsened by excessive poverty and a

high level of income disparity, a lack of awareness and knowledge and no new products

being developed in the market. Although there is a low level of overall market penetration,

the current insurance market is saturated.

There is a trend towards commoditization, current policy holders have increased access to

competitive information, and there is a greater willingness to switch suppliers based on price

considerations only. Banks locally also may pose a threat to insurers as they have greater

credibility and ability-given their vast networks and capital bases-to cross-sell insurance

products; despite the fact that they are not allowed to underwrite risk, they are very effective

as agents. Other aspects from the literature that may impact on industry economics is the

trend towards regional integration, with the formation of economic blocs such as the East

African Community (EAC).

Customer risk attributes were characterized by a shift in customers’ needs and wants

resulting in reduction of expected premiums, unawareness of the role of the life insurance

industry, new products development, quick shifts in customer priority, companies ill-

equipped to deal with customers demand and changes in reinsurance arrangement affecting

prevailing business relationships. Shifts in consumer priorities is one of the key strategic

risks mentioned in the literature that may be faced by insurance firms locally, and has been

widely noted in the literature as being a big risk. Customer changing needs are significant

and can easily render innovations obsolete and unprofitable.

42

Technology has impact on customer risk attributes through increasing information

availability increasing customer awareness and facilitating increased transaction levels

through innovative distribution channels. Consumer’s main influence in the local insurance

industry comes from the offering by insurers of standardized products and price sensitivity.

Price can be said to be a competitive tool and consumers will almost always opt for the

lowest market price of a product. In order to attain price efficiency, insurers have responded

by creating efficiency within their value chains to support a low cost structure, thus

delivering maximum price efficiency.

Market stagnation risk attributes was marked by undercutting through price wars, reduction

in the input of funds by shareholders resulting in payment delays, low productivity hence

declining profits for the company, a market that was not fully matured and the likelihood that

regulators may freeze new licenses. Owing to decreases in returns and inability to find new

sources of growth, shareholders have responded by withholding investments. Global

recession will also locally increase stagnation risk, as policy holders offload low priority

items such as life insurance, to focus on more pressing needs such as mortgages.

Technology risk attribute was marked by payment of premiums through the use of M-PESA,

direct debits and updating of customer premiums through their mobile phones, redundancy in

IT system and increased expenses/cost of updates. Use of M-PESA is an example of how

innovative technology can be used to facilitate insurance transactions, supporting the

observation that technology is changing the manner in which the insurance value chain is

delivering products and services to its consumers. One respondent observes ‘redundancy in

IT system and increased expenses/cost of updates’-this is a pointer of the commoditization of

IT systems owing to rapid innovation capabilities.

Most IT-based competitive advantages simply vanish too quickly to be meaningful. Increased

cost of updates may be a consequence of the difficulties of integration emanating from high

levels of customization of software. Making so many customized items work together in a

seamless manner is increasingly impossible, a situation aggravated when insurers try of

secure innovative IT systems for delivering strategic value (competitive advantage).

43

New project risk attributes were situations where products did not do well due to changing

economic situation, companies merging expecting increases in their market shares and failing

later and increased uncertainty in business. These risks relate to business development and

value-destroying mergers and acquisitions. Product failure to deliver can result in massive

financial losses especially arising from hidden costs involving the new product development

process. Value destroying mergers and acquisitions may arise out of a lack of synergy in the

different business strategies. The literature observes that firms should be able to leverage

existing capabilities with new ones such that the combined effort is greater than the

performance would be if the new and established services were working apart.

Globalization risk attributes were marked by an influx of foreign underwriters into the local

market, coming in of new companies especially from South Africa with a lot of capital at

their disposal, reduced investment returns following the global credit crunch, increased

competition, fluctuations in rates of exchange and in downward trends in investment in the

stock exchange. These factors point out one of the key aspects that affect globalization as

‘constant change’. The literature cautions against local companies emphasizing adhering to

their localized strategies in a globalized environment, stressing the need to change tact to

cope with global challenges.

One of this is going global themselves, as investing in two or more nations enables

companies to offset the economic troughs in one against the peaks in the others. Additionally,

it is important to observe those success factors that encourage growth in globalized markets,

key among these, being cross-cultural issues. Uncertainty is also another strategic risk in a

globalized environment. This calls for efficient and effective information gathering systems

that facilitate the decision making process. In addition to this, there is also the need for a

complete and in-depth research function that supports the decision making processes.

44

5.3 Conclusion

All the eight risks to strategy were witnessed in the Kenyan insurance sector to various

extents. The most important thing was awareness that these risks are real and an appreciation

of how they manifested themselves in practice. Competitor risk had the highest profile and

this was not entirely unexpected given that there are 23 life insurance companies all

competing for the same, largely static market quadrant. In addition, there is the threat posed

by foreign companies seeking a foothold in the local market. Life insurance penetration in

Kenya is very low and this offers a vast opportunity for growth. It may be that a reluctance to

take up life insurance has rendered the market unattractive and hence intense competition.

5.4 Limitations of the Study

Not all insurance forms responded to the study. In some cases, respondents gave

incomprehensible or incomplete answers to questions and certain questions were left

unanswered. The need to maintain confidentiality may have resulted in insurers withholding

crucial information. The results of the study were specific to life insurance only and may not

be generalizable across the entire insurance sector.

5.5 Recommendations

Given the reality of risks to company strategy, this study recommends that insurance firms

further enhance the deployment of strategic planning tools that give the firms an outside-in

perspective of the strategic planning process. An example of these tools could be the

balanced score card or the performance prism approaches respectively. Other tools that may

be useful will include conducting situation (or SWOT-Strength/Weakness,

Opportunity/Threat) analysis as well as external (or STEPEL-Social, Technological,

Economic, Political, Environmental and Legal) analysis. These various strategic planning

tools inform the organization of the viability of its strategy and how both the strategic context

and content are subject to disruption by the dynamism of the business environment. At the

implementation phase, it will be important to have strong strategic controls with viable

feedback mechanisms to enable the constant modification of strategy to suit the changing

business need.

45

5.6 Areas for further Research

A suitable study would dwell on how the life insurance firms are managing to their strategy.

Another could provide insight into the challenges these firms face in attempting to manage

this risks. In particular, both would probably try to provide knowledge of how the strategic

planning process and associated tools are applied in the process of strategy risk management

in these firms.

5.7 Implications for Policy and Practice

The two crucial countermeasures against competitor risk is include an early warning system

and, when appropriate, a shift in business design to respond to the threat when it appears. An

early warning system means continually monitoring the competitive horizon, mapping the

moves of major companies in and around your marketplace. Foreseeing the onslaught of an

extraordinary competitor isn’t enough by itself; you must be ready to shift your business

design (changing customer selection or value proposition or both) as needed to establish a

survivable niche. Regulation and de-regulation risk is best managed by best compliance

practices and continual re-invention of the organizational strategy to ensure optimal

readjustments when laws change. Such readjustments may entail mergers or recapitalization

programmes.

The most effective proven countermeasure to industry economics risk is to shift the

compete/collaborate ratio among the relevant firms. Collaboration can take many forms

including sharing of back-office functions, asset sharing or co-production agreements, repair

or maintenance collaboration, purchasing and supply chain coordination, joint research and

development, and collaborative marketing. Another strategic risk is that customer priorities

will shift quickly, reducing demand for a firm’s current product or service offerings. One

powerful countermeasure for managing customer risk is the use of proprietary information to

anticipate the next evolution of customers’ priorities and respond quickly to their

, manifestations.

46

The best countermeasure against market stagnation risk is demand innovation, which

involves redefining your customer offerings so as to broaden your market, expand the value

you can offer your customers, and strengthen your relationship with them. Regarding

technology risk, when a new technology takes hold in the marketplace, specific product and

service offerings may become obsolete in short order. In most cases, it’s impossible to

predict exactly how and when a technology will win acceptance in the marketplace. Smart

managers “insure” against technology risk by double betting, i.e. investing in two or more

versions of a technology simultaneously. That puts them in a position to survive and thrive

no matter which version emerges as the winner.

Any new product or service venture involves various risks (new project risk)-e.g. it will fail

to attract profitable customers, competitors will quickly copy it and poach market share, and

the venture’s growth will be too slow or costly. Companies that have mastered new-growth

initiatives reduce this risk through carefully planning and staging growth initiatives so as to

maximize the rewards while minimizing the risk of failure at every stage of the development

process. Globalization risk will entail a wider view of the worlds on the part of the firm, and

may require intergovernmental involvement to lower the risks of entry into foreign markets./

Insurers that had foreign franchises have the advantage of better knowledge of foreign

market risks.

47

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APPENDIX 1

University of Nairobiof Business P.O. Box 30197 Nairobi, Kenya

School

Date: 11 November 2010Telephone: +254 (020) 732160 Telex: 22095 Varsity

Dear Sir/Madam,To Whom It May Concern

The bearer of this letter: ______________________________________________

Registration Number: __________________ Telephone: ______________

is a Master of Business Administration (MBA) student at the University of Nairobi.

The student is required to submit, as part of the coursework assessment, a research project

report on a given management problem. We would like the students to do their projects on

real problems affecting firms in Kenya today. We would therefore appreciate if you assist the

student collect data in your organization to this end. The results of the report will be used

solely for purpose of the research and in no way will your organization be implicated in the

research findings. A copy of the report can be availed to the interviewed organization(s) on

request.

Yours respectfully,

The Coordinator,

MBA Programme

I

APPENDIX 2: QUESTIONNAIRE

Part 1:

1. Name of company

2. Indicate the answer that best represents the ownership composition of your company.

Local; [ ] Foreign;

[ ] Part Local/Part Foreign; [ ] Government

3. Kindly indicate whether your company is:

Private owned; [ ] Part private/part public

Public owned; Parastatal

4. Is your company listed on the Nairobi Stock Exchange?

[ 1 Yes ; [ ] No

5. Indicate below the best representation of your company’s size in terms of number of

staff.

[ ] Below 10; [ ] 10-50; [ ] 50-250; [ ] Above 250

II

Part 2:

6. Briefly explain how the below sources of risk have affected your company in recent times

i. Market stagnation risk (shareholder value reaching a plateau or gradual decline due to

inability to find new sources o f growth in the face o f market maturity)

ii. Industry economics risk (characterized by capital intensiveness, overcapacity,

commoditization, deregulation and cycle volatility)

iii. Globalization risks

iv. Customer risk (that customer’ priorities will shift quickly, reducing demand for a firm's

current product or service offerings)

III

v. Regulation and deregulation risks («occa sio n ed by ch a n g es in G o vern m en t p o licy )

vi. Technology risk (rapid changes in technology)

vii. New project risk (risk offailure o f new projects e.g. mergers, acquisitions, R&D etc)

viii. Competitor risk (threat posed by the competition)

/

IV

7. Using the scale below, please indicate the extent to which the below mentioned types of

risk affect your company

l=no extent; 2=little extent; 3=moderate extent;

4=high extent; 5=very high extent

Extent

Risk Type 1 2 3 4 5Competitor riskCustomer riskGlobalization risksIndustry economics riskMarket stagnation riskNew project riskRegulation and deregulation risksTechnology risk

V

APPENDIX 3

LIST OF LIFE INSURANCE COMPANIES IN KENYA

1 Jubilee Insurance Company Ltd 13 Kenindia Assurance Company Ltd2 Insurance Company of E. A. Limited (ICEA) 14 Kenya Alliance Insurance Co Ltd3 Heritage Insurance Company Ltd 15 UAP Provincial Ins Company Ltd4 Apollo Insurance Company Ltd 16 Trinity assurance company5 Blue Shield Insurance Company Ltd 17 Madison Insurance Company Ltd6 British American Insurance Company Ltd 18 The Monarch Insurance Co Ltd7 Cannon Assurance Company Ltd 19 Metropolitan Insurance Company8 CFC Life Limited 20 Mercantile Life & General Assurance9 Geminia Insurance Company Ltd 21 Old Mutual Life Assurance10 Co-operative Insurance Company of Kenya Ltd 22 Pioneer Assurance Co Ltd11 Corporate Insurance Company Ltd 23 First Assurance Company Ltd12 Pan Africa Life Insurance Co Ltd

Source: Insurance industry annual report (2008) |AKI],

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